Here's what the analyst who predicted Netflix's struggles says is next for the stock

Published Wed, Apr 20 20228:14 AM EDTUpdated Wed, Apr 20 20229:51 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

One of the biggest Netflix bears on Wall Street is easing off her criticism of the company slightly now that management has finally given in to one of her major arguments. Needham analyst Laura Martin upgraded Netflix to hold from underperform after the company posted a surprising subscriber loss in the first quarter , sending the stock down more than 20% in premarket trading and leading to a wave of downgrades from other analysts . Martin has long contended that Netflix needed to create a cheaper, advertising-supported tier to continue its growth, and Netflix co-CEO Reed Hastings announced on Tuesday that the company was indeed working on that. "We upgrade NFLX to Hold from Underperform because, for the first time, the CEO stated NFLX will introduce a low-priced [advertising] tier over the next 18-36 months," Martin wrote in a note to clients. Needham downgraded Netflix to underperform in December 2019 , warning the company could shed subscribers in the upcoming year. Instead, the Covid pandemic hit and led to a surge of sign-ups for streaming services across the board, making Netflix's stock a big winner in the short term. But now, with the pandemic-era demand fading, it looks like Martin may have been right after all. The stock is poised to open below where it was trading when Needham made its downgrade more than two years ago. Even now, Martin is far from bullish on the stock. She cautioned that Netflix could be at peak subscribers and continue to shed users even with the introduction of an advertising tier and enforcement against password sharing . Competition is still a major issue for Netflix going forward, regardless of pricing scheme, Martin said, as the company needs to constantly prove to consumers that it is a better value than other services. "NFLX verbiage on the 1Q22 call compared its content improvements to its past, which is irrelevant to consumers. Consumers care that Disney+ makes better films, and discovery+ makes better unscripted shows, than NFLX — instead of the fact that NFLX is making better films and reality shows today than it did 3 years ago," Martin wrote. — CNBC's Michael Bloom contributed to this report.

A remote control is seen being held in front of a television running the Netflix application

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One of the biggest Netflix bears on Wall Street is easing off her criticism of the company slightly now that management has finally given in to one of her major arguments.